EX-4.4
COMMON STOCK PURCHASE AGREEMENT
AMENDED AS OF DECEMBER 18, 2001
THIS COMMON STOCK PURCHASE AGREEMENT, as amended as of December 18, 2001
(this "Agreement"), is by and between IFG Private Equity, LLC ("IFG"), a Georgia
limited liability company and Elgrande, Inc., a corporation organized and
existing under the laws of the State of Nevada (the "Company");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company may issue and sell to IFG and IFG shall
purchase from the Company (i) up to $5,000,000 of the Common Stock (as defined
below) from time to time as provided herein and (ii) warrants in the form
attached hereto as Exhibit A to purchase One Hundred Thousand (100,000) shares
of Common Stock (the "Commitment Warrants"); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
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CERTAIN DEFINITIONS
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Section 1.1 "Accredited Buyer" shall have the meaning set forth in
Section 3.2.
Section 1.2 "Agreement" shall have the meaning set forth in the preamble of
this Agreement.
Section 1.3 "Average Daily Trading Volume" with respect to any Draw Down
effected by the Company in accordance with Section 2.3 hereof shall mean the
average daily volume of shares of Common Stock traded on the Principal Market as
reported by Bloomberg Financial during the thirty (30) consecutive Trading Day
period ending on the Trading Day immediately preceding the date on which a Draw
Down Notice (as defined below) is deemed to have been delivered pursuant to
Section 2.3(b) hereof.
Section 1.4 "Bid Price" for any given Trading Day shall mean the closing
bid price of the Common Stock on such date on the Principal Market as reported
by Bloomberg Financial.
Section 1.5 "Bloomberg Financial" shall mean Bloomberg Financial Markets or
an equivalent reliable reporting service acceptable to and hereafter designated
by IFG.
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Section 1.6 "Bring Down Comfort Letter" shall mean a letter from ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇ LLP or another independent public accounting firm, in form and substance
satisfactory to IFG, addressed to IFG and the Board of Directors of the Company
and dated as of the applicable Draw Down Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the SEC, (ii) stating, as of
the applicable Draw Down Date, the conclusions and findings of such firm with
respect to the financial information and other matters covered by the Comfort
Letter and (iii) updating the Comfort Letter with any information which would
have been included in such Comfort Letter had it been given on such Draw Down
Date.
Section 1.7 "Bylaws" shall have the meaning set forth in Section 4.3.
Section 1.8 "Capital Shares" shall mean (i) the Common Stock and (ii) any
shares of any other class of common stock, whether now or hereafter authorized,
having the right to participate in the distribution of earnings and assets of
the Company and which shall, together with the Common Stock, be treated as one
class of equity securities for purposes of determining beneficial ownership
under Section 13 and Section 16 of the Exchange Act (including the rules and
regulations promulgated thereunder).
Section 1.9 "Certificate of Incorporation" shall have the meaning set forth
in Section 4.3.
Section 1.10 "Closing" shall have the meaning set forth in Section 2.2(a).
Section 1.11 "Closing Date" shall mean the date on which the Closing
occurs.
Section 1.12 "Comfort Letter" shall mean a letter from ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
LLP or another independent public accounting firm satisfactory to IFG, in form
and substance satisfactory to IFG, addressed to IFG and the Board of Directors
of the Company and dated as of the Effective Date (i) confirming that they are
independent public accounts within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the SEC and (ii) stating, as of
the Effective Date, the conclusions and findings of such firm with respect to
the financial information and other matters ordinarily covered by accountants'
"comfort letters" to underwriters in connection with registered public
offerings.
Section 1.13 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and IFG may mutually agree in writing, and expiring on the earliest to
occur of (x) the date on which IFG shall have purchased Draw Down Shares
pursuant to this Agreement for an aggregate Purchase Price of $5,000,000, (y)
the date this Agreement is terminated pursuant to Article VII, or (z) the date
occurring thirty six (36) months from the date of commencement of the Commitment
Period.
Section 1.14 "Common Stock" shall mean the Company's common stock, $0.001
par value per share.
Section 1.15 "Common Stock Equivalents" shall mean any securities that are
convertible into or exchangeable for Common Stock or any warrants, options or
other rights to subscribe for or purchase Common Stock or any such convertible
or exchangeable securities.
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Section 1.16 "Company" shall have the meaning set forth in the preamble of
this Agreement.
Section 1.17 "Company Permits" shall have the meaning set forth in Section
4.18.
Section 1.18 "Control Person" shall have the meaning set forth in Article
X.
Section 1.19 "Damages" shall mean any loss, claim, damage, liability, costs
and expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs and expenses of expert witnesses and investigation).
Section 1.20 "Draw Down" shall mean each occasion the Company elects to
exercise its right to tender a Draw Down Notice requiring IFG to purchase a
dollar amount of the Company's Common Stock equal to the Investment Amount
specified in such Draw Down Notice, and at such price and on such terms and
conditions as are set forth in this Agreement.
Section 1.21 "Draw Down Cancellation" shall have the meaning set forth
in Section 6.4(a).
Section 1.22 "Draw Down Cancellation Date" shall have the meaning set forth
in Section 6.4(a).
Section 1.23 "Draw Down Cancellation Notice" shall have the meaning set
forth in Section 6.4(a).
Section 1.24 "Draw Down Date" shall mean any Trading Day during the
Commitment Period that a Draw Down Notice to sell Common Stock to IFG is
deemed delivered pursuant to Section 2.3(b) hereof.
Section 1.25 "Draw Down Notice" shall mean a written notice to IFG in the
form attached hereto as Exhibit B setting forth the Investment Amount that the
Company intends to sell to IFG pursuant to such Draw Down and the Floor Price
applicable to such Draw Down.
Section 1.26 "Draw Down Pricing Period" shall mean the period of twenty (20)
consecutive Trading Days starting with the first Trading Day specified in the
Draw Down Notice (or such other period of consecutive Trading Days as mutually
agreed upon by the Company and IFG). In no event shall the Draw Down Pricing
Period begin prior to five (5) Trading Days prior to the date of the Draw Down
Notice (unless otherwise waived by IFG).
Section 1.27 "Draw Down Shares" shall mean all shares of Common Stock
issued or issuable pursuant to a Draw Down which has occurred or may occur in
accordance with the terms and conditions of this Agreement.
Section 1.28 "DWAC Transfer" shall have the meaning set forth in Section
2.4.
Section 1.29 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 6.2(a).
Section 1.30 "Environmental Laws" shall have the meaning set forth in
Section 4.19(a).
Section 1.31 "Event of Default" shall have the meaning set forth in Section
7.2.
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Section 1.32 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the regulations promulgated thereunder.
Section 1.33 "Floor Price" shall mean the lowest VWAP (before taking into
account any discount used to calculate the Purchase Price hereunder) at which
the Company will sell its Common Stock as specified in the Draw Down Notice
delivered in connection with any Draw Down effected pursuant to this Agreement.
Section 1.34 "Hazardous Materials" shall have the meaning set forth in
Section 4.19.
Section 1.35 "IFG" shall mean IFG Private Equity, LLC, a Georgia limited
liability company.
Section 1.36 "Intellectual Property" shall have the meaning set forth in
Section 4.10.
Section 1.37 "Investment Amount" shall mean the aggregate dollar amount
(within the range specified in Section 2.3) of any Draw Down Shares to be
purchased by IFG with respect to any Draw Down effected by the Company in
accordance with Section 2.3 hereof.
Section 1.38 "Investment Company" shall have the meaning set forth in
Section 4.25.
Section 1.39 "Irrevocable Transfer Agent Instructions" shall have the
meaning set forth in Article IX.
Section 1.40 "Material Adverse Effect" shall mean any material adverse
effect on (i) the Securities, (ii) the assets, liabilities, business,
properties, operations, financial condition or results of operations of the
Company and its Subsidiaries (as defined in Section 4.1 hereof), if any, taken
as a whole, (iii) the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith or (iv) the authority or
the ability of the Company to perform its obligations under this Agreement, the
Registration Rights Agreement or the Warrants.
Section 1.41 "Maximum Draw Down Amount" shall mean (i) with respect to any Draw
Down effected by the Company in accordance with Section 2.3 hereof other than a
Six Month Draw Down, three hundred percent (300%) of the product of (a) the VWAP
for the Common Stock on the Trading Day immediately preceding the applicable
Draw Down Date, multiplied by (b) the Average Daily Trading Volume of the Common
Stock applicable with respect to such Draw Down Date; or (ii) if the Company
elects to utilize a Six Month Draw Down pursuant to Section 2.3 hereof, the
"Maximum Draw Down Amount" with respect to such Six Month Draw Down shall be the
lesser of (x) $500,000 or (y) of the product of (i) the VWAP for the Common
Stock on the Trading Day immediately preceding the applicable Draw Down Date,
multiplied by (ii) 180 times the Average Daily Trading Volume.
Section 1.42 "Maximum Share Amount" shall have the meaning set forth in
Section 2.1(c).
Section 1.43 "Minimum Draw Down Amount" shall mean $5,000.
Section 1.44 "NASD" shall mean the National Association of Securities
Dealers, Inc.
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Section 1.45 "Outstanding" when used with reference to Common Stock or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.46 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.47 "Principal Market" shall mean the Over The Counter Bulletin
Board (OTC BB), or theNasdaq National Market("Nasdaq"), the Nasdaq SmallCap
Market ("Nasdaq SmallCap"), the American Stock Exchange (the "AMEX") or the New
York Stock Exchange (the "NYSE"), whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.48 "Prospectus Supplement" shall have the meaning set forth in
Section 6.2(n).
Section 1.49 "Purchase Price" with respect to each Trading Day during a
Draw Down Pricing Period (or such other date on which the Purchase Price is
calculated in accordance with the terms and conditions of this Agreement) shall
mean ninety-five percent (95%) of the VWAP for such Trading Day, if the shares
trade for over $0.20 per share; ninety percent (90%) if the shares trade between
$0.10 and $0.20 per share; and eighty-five percent if the shares trade less than
$0.10 per share.
Section 1.50 "Registrable Securities" shall mean the Draw Down Shares, the
Warrant Shares and any other shares of capital stock issued or issuable as a
dividend on or in exchange for or otherwise with respect to the Draw Down Shares
and Warrant Shares until (i) the Registration Statement has been declared
effective by the SEC and all such shares have been disposed of pursuant to the
Registration Statement, (ii) all such shares have been sold under circumstances
under which all of the applicable conditions of Rule 144 (or any similar
provision then in force) are met, (iii) all such shares have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend, (iv)
such time as, in the opinion of counsel to IFG, all such shares may be sold
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act or (v) any
combination of the foregoing relating to all such shares.
Section 1.51 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and IFG as of the
Closing Date and in the form attached hereto as Exhibit D.
Section 1.52 "Registration Statement" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement and the Registration Rights Agreement, and in accordance with the
intended method of distribution of such securities), for the registration of the
resale by IFG of the Registrable Securities under the Securities Act.
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Section 1.53 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.54 "Rule 144" shall mean Rule 144 promulgated under the
Securities Act (or a successor rule).
Section 1.55 "SEC" shall mean the United States Securities and Exchange
Commission.
Section 1.56 "SEC Documents" shall have the meaning set forth in Section
4.7.
Section 1.57 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.58 "Securities" shall mean collectively the Draw Down Shares, the
Warrants and the Warrant Shares.
Section 1.59 "Securities Act" shall have the definition ascribed to it in
the recitals of this Agreement.
Section 1.60 "Settlement Date" shall mean second business day following the
end of each Draw Down Pricing Period.
Section 1.61 "Subsidiaries" shall have the meaning set forth in Section
4.1.
Section 1.62 "Trading Cushion" shall mean, at any time, the mandatory five
(5) Trading Days (or such other number of Trading Days mutually agreed upon by
the Company and IFG) between the end of a Draw Down Pricing Period and any
subsequent Draw Down Date.
Section 1.63 "Trading Day" shall mean any day during which the Principal
Market shall be open for trading.
Section 1.64 "VWAP" for any given Trading Day shall mean the daily volume
weighted average price of the Common Stock on such date on the Principal
Market as reported by Bloomberg Financial using the AQR function.
Section 1.65 "Warrants" shall mean the Commitment Warrants, a form of
which is annexed hereto as Exhibit A.
Section 1.66 "Warrant Shares" shall mean the Common Stock issued and/or
issuable upon exercise of or otherwise pursuant to the Warrants.
ARTICLE II
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PURCHASE AND SALE OF COMMON STOCK
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Section 2.1 Investments.
(a) Purchase and Sale of Common Stock. Subject to the terms and
conditions of this Agreement, the Company, at its sole and exclusive option, may
issue and sell to IFG, and IFG shall purchase from the Company, up to Five
Million Dollars ($5,000,000.00) of the Company's Common Stock, based on up to as
many Draw Downs (subject to the Maximum Draw Down Amount and the Minimum Draw
Down Amount) as the Company, in its sole discretion, shall choose to deliver
during the Commitment Period until the aggregate amount purchased under this
Agreement equals Five Million Dollars ($5,000,000).
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(b) Draw Downs. Upon the terms and subject to the conditions set
forth herein, on any Trading Day during the Commitment Period on which the
conditions set forth in Sections 6.2 and 6.3 hereof have been satisfied, the
Company may exercise a Draw Down by the delivery of a Draw Down Notice to IFG.
The aggregate number of Draw Down Shares that IFG shall be obligated to purchase
pursuant to such Draw Down shall be determined by dividing the relevant portions
of the Investment Amount specified in the Draw Down Notice by the corresponding
Purchase Prices for each Trading Day during the Draw Down Pricing Period as
specified in Section 2.3(c).
(c) Maximum Amount of Draw Down Shares. Unless the Company obtains
the approval of its stockholders in accordance with the corporate laws of the
State of Nevada and the applicable rules of the Principal Market, no more than
50,000,000 shares of Common Stock (the "Maximum Share Amount") may be issued and
sold pursuant to all Draw Downs hereunder.
(d) Warrants. On September 18, 2001, the Company issued and delivered
to IFG or its permitted assignees Commitment Warrants to purchase a one hundred
thousand shares of Common Stock. The Warrants have a term of five years and are
priced at 125% of the closing price of the Company's shares on that day. The
Warrant Shares to be issued pursuant to the Warrants shall be registered for
resale in accordance with the terms of the Registration Rights Agreement.
Notwithstanding any termination of this Agreement, regardless of whether or not
the Registration Statement is or is not filed, and regardless of whether or not
the Registration Statement is approved or denied by the SEC, IFG shall retain
full ownership of the Warrants as partial consideration for its commitment
hereunder. The terms and conditions of the Warrants are more particularly set
forth in the Commitment Warrants, attached hereto and incorporated herein as
Exhibit A.
Section 2.2 Investment Commitment.
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(a) Investment Commitment Closing. The closing of this Agreement (the
"Closing") shall be deemed to occur when this Agreement and the Registration
Rights Agreement have been executed by both IFG and the Company, and the other
conditions set forth in Section 2.2(b) below have been met.
(b) Conditions to IFG's Obligations. As a prerequisite to the Closing
and IFG's obligations hereunder, all of the following conditions shall have been
satisfied prior to or concurrently with the Company's execution and delivery of
this Agreement:
(1) the following documents shall have been delivered to IFG: (i) this Agreement
(executed by the Company); (ii) the Registration Rights Agreement (executed by
the Company); (iii) the Warrants (executed by the Company); and (iv) an
Officers' Certificate as to (A) the resolutions of the Company's Board of
Directors authorizing this transaction, (B) the Company's Articles of
Incorporation, (C) the Company's Bylaws, (D) since the date of filing of the
Company's most recent SEC Document, no event that had or is reasonably likely to
have a Material Adverse Effect shall have occurred; and (E) the representations
and warranties of the Company in this Agreement shall be true and correct in all
material respects as of the date of such Certificate; and
(2) the Company's Common Stock shall be listed for trading and
actually trading on a Principal Market.
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Section 2.3 Mechanics of Draw Downs.
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(a) Draw Down Notice. On any Trading Day during the Commitment Period,
the Company may deliver a Draw Down Notice to IFG, subject to the satisfaction
of the conditions set forth in Sections 6.2 and 6.3; provided, however, the
Investment Amount for each Draw Down as designated by the Company in the
applicable Draw Down Notice shall be neither less than the Minimum Draw
Down Amount nor more than the Maximum Draw Down Amount (as determined as of the
applicable Draw Down Date); provided further, however, that if the Maximum Draw
Down Amount as of the applicable Draw Down Date is less than the Minimum Draw
Down Amount, the Company shall not be entitled to deliver any such Draw Down
Notice. At its option, the Company may elect to deliver a Draw Down Notice for
the entire six-month period following delivery of such Notice (a "Six Month Draw
Down"), in which case, following the delivery of the Draw Down Notice for such
Six Month Draw Down, the Company shall not be entitled to deliver a further Draw
Down Notice during the following six months.
(b) Date of Delivery of Draw Down Notice. A Draw Down Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by IFG if such notice is received prior to 3:00 p.m., New York City time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 3:00 p.m., New York City time, on a Trading Day or at any time
on a day which is not a Trading Day. No Draw Down Notice may be deemed
delivered on a day that is not a Trading Day.
(c) Determination of Draw Down Shares Issuable. Subject to Sections
2.3(d) and (e) below, the number of Draw Down Shares to be purchased by IFG with
respect to any Draw Down shall be determined on a daily basis during the
applicable Draw Down Pricing Period and shall equal with respect to any such
Trading Day the quotient of (x) one-twentieth (1/20) of the Investment Amount
(or such other fraction based upon the agreed Draw Down Pricing Period), divided
by (y) the Purchase Price for such Trading Day. The portion of the Investment
Amount for which Draw Down Shares may be issued for each Trading Day during the
Draw Down Pricing Period may not exceed one-twentieth (1/20) of the Investment
Amount (or such other fraction based upon the agreed Draw Down Pricing Period).
(d) Floor Price Limitation. If the VWAP on any Trading Day during a
Draw Down Pricing Period is less than the Floor Price specified in the
applicable Draw Down Notice, the Company shall not sell and IFG shall not
purchase the Draw Down Shares otherwise to be purchased for such Trading Day.
In such case, the Investment Amount shall be reduced by one-twentieth (1/20) of
the Investment Amount (or such other fraction based upon the agreed Draw Down
Pricing Period) for each such Trading Day.
(e) Minimum Trading Hours Limitation. In the event that the Common
Stock is not listed and approved for trading on a Principal Market and free from
any halts or suspensions of trading (whether imposed generally on such Principal
Market or specifically with respect to the Common Stock) for a period of at
least six (6) hours on any Trading Day during a Draw Down Pricing Period, then
the portion of the Investment Amount allocable to the purchase of Draw Down
Shares with respect to such Trading Day pursuant to clause (x) of Section
2.3(c) above shall equal the product of (x) one-twentieth (1/20) of the
Investment Amount (or such other fraction based upon the agreed Draw Down
Pricing Period), multiplied by (y) the quotient of (A) the number of hours (or
portions thereof) during which the Common Stock actually trades on the Principal
Market on such Trading Day (exclusive of any halts or suspensions of trading
imposed generally on the Principal Market or specifically with respect to the
Common Stock), divided by (B) 6.5. In such event, the Investment Amount shall
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be reduced by the difference between one-twentieth (1/20) of the Investment
Amount (or such other fraction based upon the agreed Draw Down Pricing Period)
and the amount calculated pursuant to the preceding sentence for each such
Trading Day.
Section 2.4 Settlements. Subject to the provisions of Section 6.4, on each
Settlement Date the Company shall, unless otherwise instructed by IFG, cause the
Transfer Agent to electronically transmit shares of Common Stock to IFG (by
crediting the account of IFG'S prime broker, as designated by IFG, with the
Depository Trust Corporation through its Deposit Withdrawal Agent Commission
system ("DWAC Transfer")) representing the Shares to be purchased by IFG on such
Settlement Date with respect to the Draw Down Pricing Period immediately
preceding such Settlement Date pursuant to Section 2.3(c) herein and, upon
receipt of such Shares, IFG shall deliver the portion of the Investment Amount
representing the Shares to be purchased on such Settlement Date by wire transfer
of immediately available funds to an account designated by the Company on or
before the Settlement Date. In addition, on or prior to each such Settlement
Date, each of the Company and IFG shall deliver all documents, instruments and
writings required to be delivered by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein.
Section 2.5 Liquidated Damages. In the event the Shares are not timely
delivered by the Company on any Settlement Date, the Company will pay IFG, as
liquidated damages for such failure to deliver and not as a penalty, two percent
(2%) of the aggregate Purchase Price for such Shares for each seven (7) calendar
day period, or part thereof, following such failure, in cash, until such Shares
have been delivered. Such amount may be subtracted by IFG from the portion of
the Investment Amount otherwise payable by IFG with respect to such Shares.
ARTICLE III
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IFG'S REPRESENTATIONS AND WARRANTIES
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IFG represents and warrants to the Company that:
Section 3.1 Investment Purpose. As of the date hereof, IFG is purchasing
the Securities for its own account and not with a present view towards the
public sale of distribution thereof, except pursuant to sales registered or
exempted from registration under the Securities Act; provided, however, that by
making the representations herein, IFG does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time (including, but not limited to, during any
Draw Down Pricing Period) in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
Section 3.2 Accredited Buyer Status. IFG is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D (an "Accredited Buyer").
Section 3.3 Information. IFG and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by IFG or its advisors. IFG and its advisors, if any, have
been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigation conducted by IFG or any of
its advisors or representatives shall modify, amend or affect IFG's right to
rely on the Company's representations and warranties contained in Section 4
below. IFG understands that its investment in the Securities involves a
significant degree of risk.
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Section 3.4 Governmental Review. IFG understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
Section 3.5 Transfer or Resale. IFG understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the Securities Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the Securities Act, (b) IFG shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144) of IFG who agrees to sell or
otherwise transfer the Securities only in accordance with this Section 3.5 and
who is an Accredited Buyer or (d) the Securities are sold pursuant to Rule 144;
(ii) any sale of such Securities made in reliance on Rule 144 may be made only
in accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement. In
connection with any sale of Registrable Securities by IFG pursuant to clause (a)
above, IFG agrees to sell all such securities in compliance with applicable
prospectus delivery requirements.
Section 3.6 Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of IFG, and this
Agreement constitutes, and upon execution and delivery by IFG of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of IFG enforceable in accordance with their terms.
Section 3.7 Residency. IFG is a resident of the jurisdiction set forth
immediately below such IFG's name on the signature pages hereto.
Section 3.8 Information Furnished by IFG. All information furnished by
IFG in writing, as provided in Section 5.16, or otherwise as to itself and the
method of disposition or sale of the Registrable Securities pursuant to the
Registration Statement is, and shall be, complete and accurate in all material
respects.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants to IFG that:
Section 4.1 Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
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own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 4.1 sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have a Material
Adverse Effect. "Subsidiaries" means any corporation or other organization,
whether incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest and which would be a
"Significant Subsidiary" of the Company as defined under Rule 1-02(w) of
Regulation S-X promulgated under the Securities Act.
Section 4.2 Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement,
the Registration Rights Agreement and the Warrants and to consummate the
transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Warrants and the
issuance and reservation for issuance of the Draw Down Shares and the Warrant
Shares) have been duly authorized by the Company's Board of Directors and,
except as contemplated by Section 2.1(c), no further consent or authorization of
the Company, its Board of Directors, or its stockholders is required, (iii) this
Agreement has been duly executed and delivered by the Company, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement and the Warrants, each of such agreements and
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditor's rights and
remedies or by other equitable principles of general application from time to
time in effect.
Section 4.3 Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 200,000,000 shares of Common Stock, par
value $.001 per share, of which 16,557,620 shares of Common Stock are issued and
outstanding; 6,000,000 shares of Common Stock are reserved for issuance pursuant
to the Company's stock option plans, under which options to purchase 3,696,972
shares of Common Stock have been granted and are outstanding; 2,333,333 shares
of Common Stock are reserved for issuance pursuant to securities exercisable
for, or convertible into or exchangeable for shares of Common Stock; and
125,000(1.25x currently required) shares of Common Stock are reserved for
issuance upon exercise of the Warrants (subject to adjustment pursuant to the
Company's covenant set forth in Section 5.7 below). All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and non-assessable. No shares of capital stock of the
Company are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Except as disclosed in Schedule 4.3
or the Company's SEC Documents (as defined below), as of the effective date of
this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
11
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement)
and (iii) there are no anti-dilution or price adjustment provisions contained in
any security issued by the Company (or in any agreement providing rights to
security holders) that will be triggered by the issuance of the Warrants, the
Draw Down Shares or Warrant Shares. The Company has furnished to IFG true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof (the "Certificate of Incorporation"), the Company's By-laws as in
effect on the date hereof (the "Bylaws"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company shall provide IFG
with a written update of this representation pursuant to the Officers'
Certificate delivered by the Company's as of each Draw Down Date.
Section 4.4 Issuance of Shares. The Draw Down Shares and Warrant Shares may
and will be properly issued pursuant to Regulation D and/or any applicable state
law. When issued, the Draw Down Shares and Warrant Shares shall be duly and
validly issued, fully paid, and nonassessable. Neither the sales of the Draw
Down Shares and Warrant Shares pursuant to, nor the Company's performance of its
obligations under, this Agreement, the Warrants or the Registration Rights
Agreement will (i) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Draw Down Shares, the Warrant Shares or
any of the assets of the Company, or (ii) entitle the holders of outstanding
shares of capital stock to preemptive or other rights to subscribe to or acquire
shares of capital stock or other securities of the Company. The Draw Down
Shares and Warrant Shares shall not subject IFG to personal liability by reason
of the possession thereof.
Section 4.5 Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Draw Down Shares pursuant to Draw Downs effected hereunder and
upon issuance of the Warrant Shares upon exercise of or otherwise pursuant to
the Warrants. The Company's directors and executive officers have studied and
fully understand the nature of the Securities being sold hereunder. The Company
further acknowledges that its obligation to issue Draw Down Shares and Warrant
Shares in accordance with this Agreement and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company. Taking the
foregoing into account, the Company's Board of Directors has determined, in its
good faith business judgment, that the issuance of the Securities hereunder and
under the Warrants and the consummation of the transactions contemplated hereby
and thereby are in the best interest of the Company and its stockholders.
Section 4.6 No Conflicts. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Draw Down Shares and Warrant Shares) will
not (i) conflict with or result in a violation of any provision of the
Certificate of Incorporation or Bylaws or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
12
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Certificate of Incorporation, Bylaws or
other organizational documents and neither the Company nor any of its
Subsidiaries is in default (and no event has occurred which with notice or lapse
of time or both could put the Company or any of its Subsidiaries in default)
under, and neither the Company nor any of its Subsidiaries has taken any action
or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not being conducted,
and shall not be conducted so long as IFG owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity the
violation of which would reasonably be expected to have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable state securities laws, the Company
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court, governmental agency, regulatory agency,
self regulatory organization or stock market or any third party in order for it
to execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement or the Warrants in accordance with the terms
hereof or thereof or to issue and sell the Draw Down Shares and Warrants in
accordance with the terms hereof and to issue the Warrant Shares upon exercise
of or otherwise pursuant to the Warrants. Except as disclosed in Schedule 4.6,
all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the Nasdaq and the Company is not aware
of any event or condition that could reasonably be expected to cause the Common
Stock to be delisted by the Nasdaq in the foreseeable future. The Company and
its Subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing.
Section 4.7 SEC Documents; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Exchange Act
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to as the "SEC Documents"). The Company has delivered or made
available to IFG true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior to the date hereof). As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
13
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth in the financial statements of the Company included in the SEC Documents,
the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to May 31,
2001 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in such financial statements, which, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company.
Section 4.8 Absence of Certain Changes. Since May 31, 2001, there has been
no material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition or results of
operations of the Company or any of its Subsidiaries (other than changes which
have been disclosed in the SEC Documents filed since such date).
Section 4.9 Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. Schedule
4.9 contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries which could, either individually or in the aggregate, have a
Material Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
Section 4.10 Patents, Copyrights, etc. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("Intellectual Property") necessary to enable it to conduct
its business as now operated (and, except as set forth in Schedule 4.10 hereof,
to the best of the Company's knowledge, as presently contemplated to be
operated in the future); there is no claim or action by any person pertaining
to, or proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 4.10 hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future); to
the best of the Company's knowledge, the Company's or its Subsidiaries' current
and intended products, services and processes do not infringe on any
Intellectual Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
Section 4.11 No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
14
Section 4.12 Tax Status. Except as set forth on Schedule 4.12, the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or collection
of any foreign, federal, state or local tax. Except as set forth on Schedule
4.12, none of the Company's tax returns is presently being audited by any taxing
authority.
Section 4.13 Certain Transactions. Except as set forth on Schedule 4.13 and
as otherwise disclosed in the SEC Documents and except for arm's length
transactions pursuant to which the Company or any of its Subsidiaries makes
payments in the ordinary course of business upon terms no less favorable than
the Company or any of its Subsidiaries could obtain from third parties and other
than the grant of stock options disclosed on Schedule 4.3, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
Section 4.14 Disclosure. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
IFG pursuant to Section 3.3 hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading (other than any information IFG has refused
to accept). No event or circumstance has occurred or exists, nor is the Company
in possession of any information, with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which has not been publicly announced or disclosed but
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company.
Section 4.15 Acknowledgment Regarding IFG's Purchase of Securities.
The Company acknowledges and agrees that IFG is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that IFG is
not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and that any statement made by IFG or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to IFG's purchase of the Securities and has not been relied upon by the Company,
its officers or directors in any way. The Company further represents to IFG
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation of the Company and its representatives.
15
Section 4.16 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
Securities Act of the issuance of the Securities to IFG. The issuance of the
Securities to IFG will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
Section 4.17 No Brokers. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.
Section 4.18 Permits; Compliance. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits") except in such instances where the failure to possess such Company
Permits would not, either individually or in the aggregate, have a Material
Adverse Effect, and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits, the suspension or cancellation of which would not, either individually
or in the aggregate, have a Material Adverse Effect. Neither the Company nor
any of its Subsidiaries is in conflict with, or in default or violation of, any
of the Company Permits, except for any such conflicts, defaults or violations
which, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect. Since May 31, 2001, neither the Company nor any
of its Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
Section 4.19 Environmental Matters.
----------------------
(a) Except as set forth in Schedule 4.19, there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"Environmental Laws" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
16
(b) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or about
any real property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.
(c) There are no underground storage tanks on or under any real
property owned, leased or used by the Company or any of its Subsidiaries that
are not in compliance with applicable law.
Section 4.20 Title to Property. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects, except such as are described in Schedule 4.20 or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.
Section 4.21 Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
Section 4.22 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Section 4.23 Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his or
her actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
17
Section 4.24 Solvency. The Company (both before and after giving effect to
the transactions contemplated by this Agreement) is solvent (i.e., its assets
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured). The
Company did receive a qualified opinion from its auditors with respect to its
most recent fiscal year end and does not anticipate or know of any basis upon
which its auditors might issue a qualified opinion in respect of its current
fiscal year, assuming current financing plans are consummated.
Section 4.25 No Investment Company. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be, an "investment company" required to be registered under the Investment
Company Act of 1940 (an "Investment Company"). The Company is not controlled by
an Investment Company.
ARTICLE V
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COVENANTS
---------
Section 5.1 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Sections 5 and 6 of this
Agreement.
Section 5.2 Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to IFG promptly after such filing. The Company shall, on or before
the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to IFG pursuant
to this Agreement under applicable securities or "blue sky" laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to IFG on or prior to
the Closing Date.
Section 5.3 Reporting Status; Eligibility to Use Form SB-2, Press
Releases. The Company's Common Stock is registered under Section 12(g) of the
Exchange Act. So long as IFG beneficially owns any of the Securities, the
Company shall timely file all reports required to be filed with the SEC pursuant
to the Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination. If deemed
necessary in the opinion of counsel for both parties hereto, the Company shall
issue a press release describing the material terms of the transactions
contemplated hereby as soon as practicable following the Closing Date, but in no
event more than fifteen (15) days following the Closing Date, and shall file
with the SEC a Current Report on Form 8-K describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, the Registration Rights Agreement and the Warrants) as soon as
practicable following the Closing Date, but in no event more than fifteen (15)
days following the Closing Date, which press release and Form 8-K shall be
subject to prior review by IFG.
Section 5.4 Use of Proceeds. The Company shall use the proceeds from
the sale of the Draw Down Shares and the Warrants and from the exercise of the
Warrants in the manner set forth in Schedule 5.4 attached hereto and made a part
hereof and shall not, directly or indirectly, use such proceeds for any loan to
or investment in any other corporation, partnership, enterprise or other person
(except in connection with its currently existing direct or indirect
Subsidiaries).
18
Section 5.5 Fees and Expenses. The Company shall pay (i) all reasonable
fees and expenses related to the transactions contemplated by this Agreement;
provided, that the Company shall pay, by the Closing, all reasonable attorneys
fees and expenses (exclusive of disbursements and out-of-pocket expenses and
reasonably itemized) incurred by IFG up to $25,000 in connection with the
preparation, negotiation, execution and delivery of this Agreement, (ii) all
reasonable fees and expenses incurred by IFG in connection with any amendments,
modifications or waivers of this Agreement or incurred in connection with the
enforcement of this Agreement, including, without limitation, all reasonable
attorneys fees and expenses, and (iii) all stamp or other similar taxes and
duties levied in connection with issuance of the Shares pursuant hereto. In
addition, if by the twelve(12) month anniversary of the Effective Date the
Company has not requested Draw Down Amounts in an aggregate of $1 Million, the
Company shall pay to the Purchaser a fee equal to $25,000 in cash ("Non-Usage
Fee"), less 5% of the dollar amount of Draw Downs put to IFG during the prior
six month period. Such Non-Usage Fee, if payable, shall be determined for each
six (6) month period thereafter throughout the Commitment Period. The Non-Usage
Fee shall be payable within ten (10) days after the end of the applicable six
(6) month period. In the event the Company terminates this Agreement prior to
Draw Downs which equal in the aggregate $1,000,000, a cancellation fee of
$25,000 shall be immediately due and payable to IFG.
Section 5.6 Financial Information. The Company agrees to send the
following reports to IFG until IFG transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes available
or gives to such stockholders.
Section 5.7 Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full exercise of the Warrants and
issuance of the Warrant Shares in connection therewith (based on the Exercise
Price (as defined in the Warrants) of the Warrants in effect from time to time).
The Company shall not reduce the number of shares reserved for issuance upon
exercise of the Warrants without the consent of IFG. The Company shall use its
best efforts at all times to maintain the number of shares of Common Stock so
reserved for issuance at no less than 1.2 times the number that is then actually
issuable upon full exercise of the Warrants (based on the Exercise Price (as
defined in the Warrants) of the Warrants in effect from time to time). If at
any time the number of shares of Common Stock authorized and reserved for
issuance is below the number of Warrant Shares issued and issuable upon exercise
of or otherwise pursuant to the Warrants (based on the Exercise Price (as
defined in the Warrants) of the Warrants in effect from time to time), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of stockholders to authorize additional shares to meet the
Company's obligations under this Section 5.7, in the case of an insufficient
number of authorized shares, and using its best efforts to obtain stockholder
approval of an increase in such authorized number of shares. Prior to the
delivery of a Draw Down Notice, the Company will have reserved and the Company
shall continue to reserve and keep available at all times thereafter, free of
preemptive rights, a number of shares of Common Stock sufficient for the purpose
of enabling the Company to satisfy its obligation to issue Draw Down Shares
pursuant to such Draw Down Notice (assuming for such purposes that the Purchase
Price applicable to such Draw Down is eighty-five percent (85%) of the Floor
Price).
19
Section 5.8 Listing. The Company, if required, shall promptly secure the
listing of the Draw Down Shares and Warrant Shares upon the Principal Market and
each other national securities exchange or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and, so long as IFG owns any of the Securities, shall maintain, so
long as any other shares of Common Stock shall be so listed, such listing of all
Draw Down Shares and Warrant Shares from time to time issuable under this
Agreement or upon exercise of the Warrants. The Company will obtain and, so
long as IFG owns any of the Securities, maintain the listing and trading of its
Common Stock on a Principal Market, and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
such Principal Market and any other exchanges or automated quotation systems on
which the Common Stock is then listed. The Company shall promptly provide to
IFG copies of any notices it receives from the Principal Market and any other
exchanges or automated quotation systems on which the Common Stock is then
listed regarding the continued eligibility of the Common Stock for listing on
such exchanges and quotation systems.
Section 5.9 No Integration. The Company shall not make any offers or sales
of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause the offering of Securities to be integrated with any
other offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
Section 5.10 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.
Section 5.11 Notice of Certain Events Affecting Registration; Suspension of
Right to Deliver a Draw Down Notice. The Company will immediately notify IFG
upon the occurrence of any of the following events in respect of the
Registration Statement or related prospectus in respect of the resale of the
Registrable Securities: (i) receipt of any request for additional information
from the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement, the response to which
would require any amendments or supplements to the Registration Statement or
related prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents, so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment or supplement to the Registration Statement would be appropriate; and
the Company will promptly make available to IFG any such supplement or amendment
to the related prospectus. The Company shall not deliver to IFG any Draw Down
Notice during the continuation of any of the foregoing events and shall cancel
an existing Draw Down by delivering a Draw Down Cancellation Notice in the
manner required by Section 6.4 of this Agreement.
20
Section 5.12 Disclosure of Material Information. In the event that the
Company comes into possession of any material non-public information, the
Company shall make full and complete public disclosure in accordance with all
applicable securities laws (including all common law formulations thereof).
Section 5.13 Issuance of Draw Down Shares. The sale and issuance of the
Draw Down Shares shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state law.
Section 5.14 Trading Guidelines. IFG has the right to sell shares of Common
Stock during the Commitment Period. IFG agrees, however, that prior to and
during the Commitment Period, neither IFG nor any of its affiliates, nor any
entity managed by IFG, will intentionally sell shares of Common Stock other than
the shares of Common Stock which IFG has purchased under the terms of this
Agreement (including for this purpose, the number of shares of Common Stock
issued and/or issuable upon exercise of the Warrants and, in the case of a Draw
Down Notice that has been delivered, an estimate of the number of Draw Down
Shares issuable in connection with such Draw Down Notice (assuming for such
purposes that the number of Draw Down Shares to be issued pursuant to such Draw
Down Notice equals the Investment Amount specified in such Draw Down Notice
divided by ninety-five percent (95%) of the Floor Price)), whether in accounts
directly or indirectly managed by IFG or any affiliate of IFG or any entity
managed by IFG.
Section 5.15 Compliance by IFG with SEC Rules and Regulations. IFG shall
comply with all SEC rules and regulations relating to the sale of the
Registrable Securities including, without limitation, prospectus delivery
requirements and rules relating to the manner of sale of the Registrable
Securities, and will file all necessary SEC forms and schedules with respect to
its ownership of Common Stock or its disposition of the Registrable Securities.
Section 5.16 Written Information to be Furnished by IFG. IFG shall
furnish to the Company in writing for inclusion in the Registration Statement
all information with respect to itself and the manner of disposition or sale of
the Registrable Securities as is required by SEC rules and regulations to be
disclosed in the Registration Statement.
ARTICLE VI
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CONDITIONS TO DELIVERY OF DRAW DOWN
----------------------------------------
NOTICES AND CONDITIONS TO SETTLEMENT
----------------------------------------
Section 6.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Draw Down Shares to IFG incident to each Settlement is
subject to the satisfaction, at or before each such Settlement, of each of the
conditions set forth below.
(a) Accuracy of IFG's Representation and Warranties. The
representations and warranties of IFG shall be true and correct in all material
respects as of the date when made and as of the date of each such
Settlement as though made at each such time (except for representations and
warranties specifically made as of a particular date which shall be true and
correct in all material respects as of the date when made).
(b) Performance by IFG. IFG shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by IFG at or prior
to such Settlement.
21
Section 6.2 Conditions Precedent to the Right of the Company to Deliver a
Draw Down Notice. The right of the Company to deliver a Draw Down Notice
hereunder is subject to the satisfaction, on the date of delivery of such Draw
Down Notice, of each of the following conditions:
(a) Registration of the Common Stock with the SEC. As set forth in
the Registration Rights Agreement, the Company shall have filed with the SEC a
Registration Statement with respect to the resale of the Registrable
Securities that shall have been declared effective by the SEC prior to the first
Draw Down Date.
(b) Effective Registration Statement. As set forth in the
Registration Rights Agreement, the Registration Statement shall have previously
been declared effective and shall remain effective and sales of all of the
Registrable Securities (including all of the Warrant Shares issued and/or
issuable upon exercise of the Warrants, all of the Draw Down Shares issued with
respect to all prior Draw Downs and all of the Draw Down Shares expected to be
issued in connection with the Draw Down specified by the current Draw Down
Notice (assuming for such purpose that the Purchase Price applicable to such
Draw Down is ninety-five percent (95%) of the Floor Price)) may be made by IFG
and (i) neither the Company nor IFG shall have received notice that the SEC has
issued or intends to issue a stop order with respect to the Registration
Statement or that the SEC otherwise has suspended or withdrawn the effectiveness
of the Registration Statement either, temporarily or permanently, or intends or
has threatened to do so, (ii) no other suspension of the use or withdrawal of
the effectiveness of the Registration Statement or
related prospectus shall exist and (iii) no event specified in Section 5.11
shall have occurred and be continuing.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the applicable Draw Down
Date as though made at such time (except for representations and warranties
specifically made as of a particular date which shall be true and correct in all
material respects as of the date when made).
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to such
date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby that prohibits or directly and adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
that may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(f) Material Adverse Changes. Since the date hereof, no event that
had or is reasonably likely to have a Material Adverse Effect shall have
occurred.
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including without limitation the Draw Down Shares)
shall not have been suspended by the SEC, the Principal Market or the NASD and
the Common Stock (including without limitation the Draw Down Shares) shall have
been approved for listing or quotation on and shall not have been delisted from
the Principal Market.
22
(h) Adequacy of Disclosure. In the reasonable opinion of counsel to
IFG, the disclosure contained in the Registration Statement shall not be
inadequate or misleading.
(i) Cross Default. The Company shall not be in default of a material
term, covenant, warranty or undertaking of the Company contained in the Warrants
and the Registration Rights Agreement, nor shall there have occurred an Event of
Default under this Agreement.
(j) No Knowledge. The Company shall have no knowledge of any
event that would reasonably be expected to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective (which event is
more likely than not to occur within the nine (9) Trading Days following the
Trading Day on which such Draw Down Notice is deemed delivered).
(k) Trading Cushion. The Trading Cushion shall have elapsed
since the end of the preceding Draw Down Pricing Period.
(l) Maximum Share Amount. Unless the Company has obtained the
requisite approval of its stockholders in accordance with the corporate laws of
the State of Nevada and the applicable rules of the Principal Market, in no
event may the Company issue a Draw Down Notice to sell an Investment Amount to
the extent that the sum of (x) the number of shares of Common Stock represented
by the quotient of (i) the requested Investment Amount, divided by (ii)
ninety-five percent (95%) of the Floor Price, plus (y) the cumulative total of
all shares of Common Stock issued under all previous Draw Downs effected
pursuant to this Agreement, would exceed the Maximum Share Amount.
(m) Investment Amount Limitation. On each Draw Down Date, the
Investment Amount specified in the applicable Draw Down Notice may not exceed
the dollar amount which would result in a number of Draw Down Shares then to be
purchased by IFG (for purposes of this Section 6.2(m), assuming that such number
of Draw Down Shares to be issued pursuant to such Draw Down Notice equals the
Investment Amount specified in such Draw Down Notice, divided by eighty-five
percent (85%) of the Floor Price) which, when aggregated with all shares of
Common Stock then owned by IFG beneficially or deemed beneficially owned by IFG
(excluding shares which may become issuable pursuant to future Draw Downs
hereunder and excluding shares which may be deemed beneficially owned through
the ownership of the unexercised Warrants), would result in the beneficial
ownership by IFG of more than 9.9% of the then Outstanding Shares on such Draw
Down Date. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13D-G thereunder, except as otherwise provided above with
respect to the exclusion of shares which may become issuable pursuant to future
Draw Downs.
(n) Prospectus Supplement. If agreed as necessary by counsel for both
parties, a supplement to the prospectus contained in the Registration
Statement (the "Prospectus Supplement"), in form and substance to be agreed upon
by the parties, setting forth information regarding the Draw Down including,
without limitation, the Draw Down Date, the Investment Amount, the number of
shares sold to IFG in connection with all previous Draw Downs, if not previously
disclosed in an SEC Document, and any additional information required by SEC
rules and regulations, including Item 507 of Regulation S-K, shall have been
filed with the SEC.
Section 6.3 Documents Required to be Delivered on each Draw Down Date.
IFG's obligation to purchase Shares pursuant to a Draw Down hereunder shall
additionally be conditioned upon the delivery to IFG on each Settlement Date
(referred to in Section 2.4) of an Officers' Certificate substantially in the
form of Exhibit B attached hereto.
23
Section 6.4 Draw Down Cancellation.
------------------------
(a) Mechanics of Draw Down Cancellation. If at any time during a Draw
Down Pricing Period, (i) any of the events specified in Section 5.11 of this
Agreement shall occur, (ii) any of the conditions precedent to a Draw Down set
forth in Section 6.2 shall no longer be satisfied as of any date during the Draw
Down Pricing Period or (iii) the Company discovers that a document set forth in
Section 6.3(a), (b) or (d) would no longer be true if delivered as of such date
during the Draw Down Pricing Period, then the Company shall cancel the Draw Down
(a "Draw Down Cancellation") immediately by delivering written notice to IFG
(the "Draw Down Cancellation Notice"), by facsimile and overnight courier. The
Draw Down Cancellation Notice shall be deemed delivered on (i) the Trading Day
it is received by facsimile or otherwise by IFG if such notice is received prior
to 5:00 p.m., New York City time, or (ii) the immediately succeeding Trading Day
if it is received by facsimile or otherwise after 5:00 p.m., New York City time,
on a Trading Day, or at any time on a day which is not a Trading Day. No Draw
Down Cancellation Notice may be deemed delivered on a day that is not a Trading
Day. "Draw Down Cancellation Date" shall be the date the Draw Down Cancellation
Notice is deemed delivered pursuant to the preceding sentence.
(b) Effect of Draw Down Cancellation. If a Draw Down Cancellation
Notice has been delivered to IFG after a Draw Down Date, the Draw Down Pricing
Period for such Draw Down shall (except as provided in the proviso to the
succeeding sentence) end on the Trading Day immediately preceding the Draw Down
Cancellation Date. In such event, the Investment Amount relating to such Draw
Down shall be reduced by one-twentieth (1/20) (or such other fraction based upon
the agreed Draw Down Pricing Period) with respect to each Trading Day during the
period beginning on and including the Draw Down Cancellation Date and ending on
the last Trading Day of such Draw Down Pricing Period; provided, however, that,
except as otherwise provided in Section 2.3(e) hereof, in the event that a Draw
Down Cancellation Notice is deemed delivered on the Trading Day it is received
by IFG pursuant to clause (i) of the second sentence of Section 6.4(a) above,
then the Investment Amount allocable to such Trading Day shall be reduced by the
difference between (x) one-twentieth (1/20) of the Investment Amount (or such
other fraction based upon the agreed Draw Down Pricing Period) and (y) the
product of (A) one-twentieth (1/20) of the Investment Amount (or such other
fraction based upon the agreed Draw Down Pricing Period), multiplied by (B) the
quotient of (i) the number of hours (or portions thereof) during which the
Common Stock has actually traded on the Principal Market on such Trading Day
(exclusive of any halts or suspensions of trading imposed generally on the
Principal Market or specifically with respect to the Common Stock) prior to the
actual time on which IFG received the Draw Down Cancellation Notice (as
evidenced by the time and date set forth IFG's facsimile copy thereof), divided
by (ii) 6.5. Anytime a Draw Down Cancellation Notice is delivered IFG, such
Draw Down shall remain effective as to the portion of the Investment Amount not
canceled pursuant to the preceding sentence and IFG shall be entitled to use the
Registration Statement and related prospectus for sales of the Shares issuable
with respect to such non-canceled portion of the Investment Amount.
ARTICLE VII
------------
TERMINATION
-----------
Section 7.1 Term; Termination by Mutual Consent. Subject to the
provisions of Section 7.2, the term of this Agreement shall run until the end of
the Commitment Period; provided that the right of the Company to effect any Draw
Downs under this Agreement may be terminated at any time by mutual consent of
the parties.
24
Section 7.2 Termination by IFG. IFG may terminate the right of the Company
to effect any Draw Downs under this Agreement upon one (1) Trading Day's notice
if any of the following events (each, an "Event of Default") shall occur:
(a) The Company (i) fails to issue shares of Common Stock to IFG on
any Settlement Date, (ii) fails to remove any restrictive legend (or to withdraw
any stop transfer instructions in respect thereof) on any certificate or any
shares of Common Stock issued to IFG as and when required by this Agreement or
the Registration Rights Agreement, or (iii) fails to fulfill its obligations
pursuant to Sections 5.3, 5.4, 5.5, 5.7, 5.8, 5.11, 5.12 or Article IX of this
Agreement (or makes any announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph), and any such
failure shall continue uncured (or any announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for ten (10) days after
the Company shall have been notified thereof in writing by IFG;
(b) The Company fails to obtain effectiveness with the SEC
prior to December 31, 2001 of the Registration Statement required to be filed
pursuant to Section 2(a) of the Registration Rights Agreement, or fails to
obtain the effectiveness of any additional Registration Statement (required to
be filed pursuant to Section 3(b) of the Registration Rights Agreement) within
ninety (90) days after the Registration Trigger Date (as defined in the
Registration Rights Agreement), or any such Registration Statement, after its
initial effectiveness and during the Registration Period (as defined in the
Registration Rights Agreement), lapses in effect or sales of all of the
Registrable Securities otherwise cannot be made thereunder (whether by reason of
the Company's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement, the Company's failure to file
and obtain effectiveness with the SEC of an additional Registration Statement
required pursuant to Section 3(b) of the Registration Rights Agreement or
otherwise) for more than twenty (20) consecutive Trading Days or more than sixty
(60) Trading Days in any twelve (12) month period after such Registration
Statement becomes effective;
(c) The Company or any Subsidiary shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for all or substantially all of its property or
business; or such a receiver or trustee shall otherwise be appointed;
(d) Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company or any
subsidiary of the Company;
(e) The Company shall fail to maintain the listing of the Common Stock
on a Principal Market or trading in such Common Stock shall otherwise be halted
or suspended for a period of ten (10) consecutive Trading Days;
(f) The sale, conveyance or disposition of all or substantially all of
the assets of the Company, the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or the consolidation, merger or other business
combination of the Company with or into any other Person or Persons when the
Company is not the survivor;
(g) The Company breaches any material representation or warranty
contained in this Agreement; or
(h) Since the date hereof, an event that had a Material Adverse Effect
shall have occurred.
25
ARTICLE VIII
-------------
NON-DISCLOSURE OF MATERIAL NON-PUBLIC INFORMATION
-----------------------------------------------------
Section 8.1 Non-Disclosure of Material Non-Public Information.
(a) The Company covenants and agrees that it shall refrain from
disclosing, and shall cause its officers, directors, employees and agents to
refrain from disclosing, any material non-public information to IFG, unless
prior to disclosure of such information the Company identifies such information
as being material non-public information and provides IFG and its advisors and
representatives with the opportunity to accept or refuse to accept such material
non-public information for review.
(b) The Company acknowledges and understands that IFG is entering into
this Agreement and the Registration Rights Agreement at the request of the
Company and in good faith reliance on (i) the Company's representation set forth
in Section 4.14 that neither it nor its agents have disclosed to IFG any
material non-public information; and (ii) the Company's covenant set forth in
Section 5.12 that if the Company comes into possession of any material
non-public information, the Company shall timely make full and complete public
disclosure of all or such portion of such information in accordance with all
applicable securities laws (including common law formulations thereof).
(c) Nothing herein shall require the Company to disclose material
non-public information to IFG or its advisors or representatives, and the
Company represents that it does not disseminate material non-public information
to any investors who purchase stock in the Company in a public offering, to
money managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company will as hereinabove
provided, immediately notify IFG and its advisors and representatives and, if
any, underwriters, of the existence of any event or circumstance (without any
obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting material non-public information (whether or not
requested of the Company specifically or generally during the course of due
diligence by such persons or entities), which, if not disclosed in the
prospectus included in the Registration Statement would cause such prospectus
to include a material misstatement or to omit a material fact required to be
stated therein in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE IX
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TRANSFER AGENT INSTRUCTIONS
-----------------------------
The Company shall issue instructions in the form attached hereto as Exhibit
C to its transfer agent to electronically transmit the Draw Down Shares to IFG
by DWAC Transfer upon issuance of the Draw Down Shares in accordance with the
terms hereof (the "Transfer Agent Instructions"). The Company warrants that no
instruction other than the Transfer Agent Instructions referred to in this
Article IX will be given by the Company to its transfer agent with respect to
the Draw Down Shares and that the Draw Down Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way IFG's obligations to comply with all
applicable prospectus delivery requirements, if any, upon re-sale of the Draw
Down Shares.
ARTICLE X
----------
INDEMNIFICATION
---------------
Section 10.1 Indemnification by Company. The Company agrees to indemnify
and hold harmless IFG, its partners, owners, affiliates, officers, directors,
employees, and duly authorized agents, and each Person or entity, if any, who
controls IFG within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act (a "Control Person"), from and against any Damages, joint
or several, and any action in respect thereof to which IFG, its partners,
owners, affiliates, officers, directors, employees, duly authorized agents and
Control Persons, becomes subject to, resulting from, arising out of or relating
to any breach or alleged breach by the Company of any representation or warranty
or to the nonfulfillment of or failure to perform any covenant or agreement on
the part of Company contained in this Agreement or the Registration Rights
Agreement in any event as such Damages are incurred.
Section 10.2 Indemnification by IFG. IFG agrees to indemnify and hold
harmless the Company, its affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (a "Control Person"), from and against any Damages, joint or
several, and any action in respect thereof to which the Company, its affiliates,
officers, directors, employees, duly authorized agents and Control Persons,
becomes subject to, resulting from, arising out of or relating to any breach or
alleged breach by IFG of any representation or warranty or to the nonfulfillment
of or failure to perform any covenant or agreement on the part of IFG contained
in this Agreement or the Registration Rights Agreement in any event as such
Damages are incurred.
Section 10.3 Resolution of Indemnity Claims. The Company and IFG hereby agree
to resolve any claim for indemnification under this Article X pursuant to the
procedures for indemnification set forth in Section 6 of the Registration Rights
Agreement.
ARTICLE XI
-----------
MISCELLANEOUS
-------------
Section 11.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada applicable to
agreements made and to be performed in the State of Nevada (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
exclusive jurisdiction of the United States federal courts and the state courts
located in Nevada with respect to any suit or proceeding based on or arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process
in any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
26
Section 11.2 Notices. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Elgrande, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇
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Tel:(▇▇▇)▇▇▇-▇▇▇▇
Fax:(▇▇▇)▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, CEO
If to IFG:
IFG Private Equity, LLC
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Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Each party shall provide notice to the other party of any change in
address.
Section 11.3 Counterparts; Signatures by Facsimile. This Agreement may
be executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party.
Section 11.4 Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 11.5 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
Section 11.6 Entire Agreement; Amendments. This Agreement, the Warrants,
the Registration Rights Agreement and the Exhibits hereto contain the
entire agreement and understanding of the parties with respect to the matters
covered herein and therein and supersede all prior and contemporaneous
agreements, negotiations and understandings between the parties, both oral and
written relating to the subject matter hereof. The terms and conditions of all
exhibits to this Agreement are incorporated herein by this reference and shall
constitute part of this Agreement as if fully set forth herein. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
Section 11.7 Successors and Assigns. This Agreement shall not be
assignable.
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Section 11.8 Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 11.9 Survival. The representations and warranties of the
Company and the agreements and covenants set forth in Article IV, V, VI, VIII,
IX and X shall survive the Closing and each Settlement Date hereunder
notwithstanding any due diligence investigation conducted by or on behalf of
IFG.
Section 11.10 Publicity. The Company and IFG shall have the right to review
a reasonable period of time before issuance of any press releases, filings with
the SEC, NASD or any stock exchange or interdealer quotation system, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of IFG, to make any press release or public filings with respect to
such transactions as is required by applicable law and regulations (although IFG
shall be consulted by the Company in connection with any such press release or
public filing prior to its release or public filing and shall be provided with
a copy thereof and be given an opportunity to comment thereon).
Section 11.11 Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 11.12 No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
Section 11.13 Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to IFG by vitiating the intent
and purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that IFG shall be
entitled, in addition to all other available remedies in law or in equity, to an
injunction or injunctions to prevent or cure any breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions of this
Agreement, without the necessity of showing economic loss and without any bond
or other security being required.
Section 11.14 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the VWAP, trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement shall be Bloomberg Financial.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
ELGRANDE, INC.
By: _________________________
Chief Executive Officer
IFG PRIVATE EQUITY, LLC
By: _________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Manager
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EXHIBIT A-COMMITMENT WARRANTS
(Attached as exhibit 4.5)
30
EXHIBIT B
OFFICERS' CERTIFICATE
The undersigned officers of Elgrande, Inc., a Nevada corporation (the
"Company"), do hereby deliver this certificate on behalf of the Company on and
as of the Settlement Date specified below pursuant to the Common Stock Purchase
Agreement, dated September 18, 2001 (the "Agreement"), between the Company and
IFG Private Equity, LLC ("IFG"), and hereby certify that:
(A) the representations and warranties of the Company contained in the
Agreement were true and accurate in all material respects on the date of the
Agreement and are true and accurate in all material respects as of the date of
this Certificate;
(B) the Company has performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by the Agreement
and the Registration Rights Agreement to be performed, satisfied or complied
with by the Company at or prior to the date hereof;
(C) the Company has filed with the SEC a Registration Statement with respect
to the resale of Securities by IFG which was declared effective by the SEC on
___________; and (i) the Company has not received notice that the SEC has issued
or intends to issue a stop order with respect to such Registration Statement or
that the SEC otherwise has suspended or withdrawn the effectiveness of such
Registration Statement, either temporarily or permanently, or intends or has
threatened to do so, and (ii) no other suspension of the use or withdrawal of
the effectiveness of such Registration Statement or related prospectus shall
exist;
(D) the Company has no knowledge of any event reasonably likely to cause any
Registration Statement to be suspended or otherwise ineffective;
(E) (i) the Common Stock of the Company has been approved for quotation on
the Principal Market, (ii) the Common Stock has not been suspended by the SEC,
the Principal Market or the NASD and (iii) to the best of the Company's
knowledge its Common Stock will not be delisted from the Principal Market within
the next thirty (30) calendar days;
(F) the Registration Statement does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(G) since the date of the Company's financial statements most recently filed
pursuant to the Securities Exchange Act of 1934, as amended, no event that had
or is reasonably likely to have a Material Adverse Effect has occurred;
(H) the aggregate number of shares of Common Stock issued and outstanding as
of this Settlement Date, after giving effect to the number of shares being
purchased by IFG on this Settlement Date, is ______________ shares;
(I) the issuance of shares of Common Stock on this Settlement Date shall
not violate the shareholder approval requirements of the Principal Market; and
(J) as of the date hereof, the authorized capital stock of the Company
consists of 200,000,000 shares of Common Stock, of which as of the date hereof,
approximately 16,557,620 shares are issued and outstanding, 0 shares of
Preferred Stock, of which 0 shares are issued and outstanding, and approximately
____________ shares of Common Stock which are issuable upon the exercise of
options, warrants and conversion rights.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement.
Dated as of ____________, 200_, Settlement Date Pursuant to the Agreement:
ELGRANDE, INC.
______________________________
Name:
Title:
______________________________
Name:
Title:
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EXHIBIT C
TRANSFER AGENT INSTRUCTION LETTER FORM:
___________, 2001
Transfer Agent
Re: Elgrande, Inc.
Common Stock Purchase Agreement, dated
September 18, 2001, with IFG Private Equity LLC
Drawdown Notice No. __, dated _____, 2001
_________________________________________
Dear Sir or Madam:
We are counsel to Elgrande, Inc., a Nevada corporation (the "Company").
On behalf of the Company, this is to instruct ___________________ to issue
certificates for shares of Common Stock, par value $.001 per share, of the
Company registered in the following names and in the following denominations:
Name Number of Shares Securities Act Status
---- ------------------ -----------------------
Registered
The certificate(s) for the above authorized shares are to be delivered as
follows:
The shares are registered pursuant to the Company's Registration Statement under
the Securities Act of 1933, as amended (File No. _______ ), declared effective
by the Securities and Exchange Commission on __________ , 2001.
Attached are copies of the resolutions adopted by the Board of Directors of the
Company authorizing the above stock issuance, certified by the Secretary of the
Company.
If you have any questions as to the above, please do not hesitate to
contact the undersigned.
Very truly yours,
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